The Plastic Iron Company Has Decided to Acquire a New

The Plastic Iron Company has decided to acquire a new electronic milling machine. Plastic Iron can purchase the machine for $87,000 which has an expected life of 8 years and will be depreciated using 7 class MACRS rates of .1428,.2449,.1749,.125,.0892,.0892,.0892 and any remainder in year 8. Miller Leasing has offered to lease the machine to Plastic Iron for $14,000 a year for 8 years. Plastic Iron has an 18.64% cost of equity,12% cost of debt,a 1:1 D/E ratio and faces a 34% marginal tax rate. Should they lease or buy?
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Kd_AT = .12(1 - .34) = .12(.66) = .0792 = ...

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